November 2, 1965 FOMC Minutes

FOMC minutes

He did not think anyone ought to prejudge the future. It was clearly evident to him, however, that the time was coming when the System would have to move one way or the other. It would not be possible simply to stay put. The Treasure's financial problem, which he saw as the major problem ahead, would either be solved by a pause in business activity and a decline in the demand for business loans or else it would have to be solved, assuming the requirements were financed at current rates, by an aggressively easier policy on the part of the Federal Reserve. The situation was getting again to a point similar to that which existed at the Lime of the Treasury Federal Reserve accord in 1951. There was not a complete analogy, of course, but the problem was not going to go away, assuming current trends continued. He hoped that everyone would be considering the matter carefully in the remaining time that was available. Personally, he would be glad if there was a little pause in economic and financial activity, for this would ease the problem, but forces seemed to be moving inexorably in a direction that made it unlikely that the System could avoid a decision one way or the other. As to policy for the next three weeks, the Chairman noted that there appeared to be general agreement on a directive such as proposed by the staff. Thereupon, upon motion duly made and seconded, and by unanimous vote, the Federal Reserve Bank of New York was authorized and directed, until otherwise directed by the Committee,

to execute transactions in the System Account in accordance with the following current economic policy directive: The economic and financial developments reviewed at this meeting indicate that over-all domestic economic activity has expanded further in a continuing climate of optimistic business sentiment and firmer financial conditions, and that our inter national payments have remained in deficit. In this situation, it remains the Federal Open Market Committee's current policy to strengthen the international position of the dollar, and to avoid the emergence of inflationary pressures, while accommodat ing moderate growth in the reserve base, bank credit, and the money supply. To implement this policy, and taking into account the Treasury financing schedule, System open market operations until the next meeting of the Committee shall be conducted with a view to maintaining about the same conditions in the money market that have prevailed since the last meeting of the Committee. Cnairman Martin noted that a memorandum from Mr. Holmes dated November 1, 1965, had been distributed regarding the data proposed for submission in response to the request from Chairman Patman of the House Banking and Currency Committee, by letter dated September 21, 1965, for various records of the System Open Market Account. (This request had been considered previously at the Committee meeting on September 28, 1965.) No objection was raised to the furnishing of the materials described in Mr. Holmes' memorandum. It was understood that Chairman Martin would write to Chairman Patman listing the materials to be submitted and advising of the approximate date contemplated for delivery thereof. Secretary's Note: Quoted below is the text of the letter sent by Chairman Martin under date of November 8, 1965:

This is in further reference to your letter of September 21, 1965, in which you asked for certain information concern ing the System Open Market Account. At its November 2 meeting, the Federal Open Market Com mittee directed its staff to prepare and assemble the following data, records, and other information relating to the questions raised in your letter: Dollar Value of Portfolio 1. System Account holdings as of the end of each month, December 31, 1963 through June 30, 1965 broken down between Treasury bills, notes and bonds and showing par value, accrued interest, premium, discount and net book value. 2. Sample photostat copies of the actual System Account books for the above dates showing total par value, accrued interest, premium and discount with distributions among the twelve Federal Reserve Banks and by issues. Trading since January 1, 1964 1. Summary transactions from 1964 and 1965 through June 30, 1965. 2. Copies of System Account books for the same period showing individual daily transactions by issue, amount (par value), and price but after deletion code number for the dealer with whom the transaction was carried out. Income of System Open Market Account 1. Annual income and profit and loss for the year 1964 and 1965 through June 30, broken down between income from interest-bearing securities and Treasury bills. 2. Sample photostat copies of actual System Account books for the end of each month December 31, 1963 through June 30, 1965 showing daily net income accumulations distributed among the twelve Federal Reserve Banks. Other Material Memorandum describing procedures for handling income of Open Market Account and for participation of Reserve Banks in that income. Preparation of the material should be completed in roughly two weeks; it will be delivered to you as soon as it is ready. Chairman Martin also noted that a list of dates for prospective meetings of the Cuommittee during the year 1966 had been distributed.

He asked whether there were any comments, or suggestions for changes in the schedule, and the comments heard were favorable. It was agreed that the next meeting of the Committee would be held on Tuesday, November 23, 1965, at 9:30 a.m. Thereupon the meeting adjourned. Secretary